Hong Kong: The Right To Arrest In Respect Of A Dispute Under A Sale And Purchase Agreement

Last Updated: 7 October 2011
Article by Rory Macfarlane and Su Yin Anand

Birnam Ltd v. The Owners of the Ship or Vessel Hong Ming [2011] HKCFI 577

In the recent case of Birnam Ltd v. The Owners of the Ship or Vessel Hong Ming, the Hong Kong Courts set aside a Warrant of Arrest obtained by the Buyers under a sale and purchase agreement. The judge also ordered that there be an enquiry into damages for wrongful arrest. The case offered a rare opportunity for practitioners and the Court to re-visit the issues of whether a ship can be arrested in respect of a sale and purchase dispute and the extent of the arresting party's duty of disclosure.

The background facts

The owners of the vessel Hong Ming ("the Sellers") entered into a Memorandum of Agreement with Star Matrix Ltd or nominee for the sale of the Hong Ming ("the Vessel"). Birnam Ltd were nominated as the Buyers. The MOA was signed on 19 July 2011 in similar wording to the 1987 Norwegian Sale Form.

Clause 2 of the MOA provided that a 20% deposit in the sum of US$663,968 was to be paid by the Buyers "... as security for the correct fulfilment of this contract ... within 3 New York/London banking days from the date of both parties signing this MOA ...". However, by 26 July 2011, the Buyers had only paid a deposit of US$400,000. On 27 July 2011, the Sellers cancelled the MOA.

The Buyers then sought to negotiate further with the Sellers to keep the sale alive albeit on revised terms. Among other things, the Buyers were insisting on being allowed to inspect the Vessel in Hong Kong. The Sellers initially refused and, on 3 August 2011, the Buyers sent a message to the Sellers declaring that the "previous MOA is null and void" and demanded the return of the deposit monies. The Sellers subsequently ordered the Vessel to sail to Hong Kong for the inspection. She arrived on 14 August 2011 and was immediately arrested. Unknown to the Sellers, 10 days before on 3 August 2011, the Buyers had obtained a Warrant of Arrest. No inspection took place. The Sellers applied to set aside the Warrant of Arrest.

The Buyers' case

The Buyers' claim was pleaded as one for possession or ownership of the Vessel or alternatively, for a refund of the sum of US$400,000 and damages. In the application for the Warrant of Arrest, the Buyers claimed that they were entitled to specific performance of the MOA and that they had acquired a right or interest in the Vessel by way of the partial payment of the deposit.

The Court's decision

The Court held that neither the 1952 Arrest Convention nor section 12A(2) of the Hong Kong High Court Ordinance (Cap 4) allowed a party to arrest for claims arising from contracts for the sale of a ship.

The Buyers sought to argue that their claim fell under section 12A(2)(a) of the Hong Kong High Court Ordinance, namely a claim for possession or ownership of a ship, or to the ownership of any share therein. The Admiralty judge, Reyes J., gave this argument short shrift. He held that:-

  • The MOA had been terminated as a result of the Buyers' failure to pay the full deposit. It followed that property in the ship must now be fully vested in the Sellers.
  • There can be no prospect of obtaining specific performance of a contract that had been terminated.
  • The deposit was expressly payable as security for performance by the Buyers of their obligations as Buyers. On the terms of the MOA, it could not be asserted that the retention of part of the deposit by the Sellers enabled the Buyers to assert a proprietary right in the ship.
  • There was absolutely no basis for the Buyers' claim and the Warrant of Arrest should not have been issued. The arrest was set aside and indemnity costs awarded to the Sellers.
  • The Sellers were entitled to treat the part payment of the deposit as forfeited.

Having set aside the Warrant of Arrest, the Court then focused on the Buyers' conduct in obtaining it in the first place.

The application for arrest had not been made to the Admiralty Judge, but to a duty Judge, despite the fact that the Admiralty Judge was in Hong Kong on the day of the application. Reyes J. held that the Buyers had failed to make full and frank disclosure of the fact that 'conventional wisdom' is that their claim did not fall within the claims giving rise to a right of arrest. In the supporting affidavit, the Buyers had made the bare assertion that they had such a right. He went on to state that, at the ex parte stage, Birnam had failed to provide the duty Judge with a 'fair and even-handed analysis' of the authorities in connection with how such interest was alleged to arise.

The Buyers' conduct was further criticised in that they failed to disclose the negotiations which took place following the issue of the Warrant of Arrest which culminated in the Sellers bringing the ship to Hong Kong. The judge emphasised that the duty of full and frank disclosure is a continuing one.

The Court held that the circumstances surrounding the arrest justified an order of damages for wrongful arrest. The evidence suggested that the Buyers had proceeded with the arrest in a 'cavalier fashion' when they failed to address their mind to the issues arising from their claim and their disclosure obligations. The Court felt the evidence suggested that the request for the inspection of the Vessel was merely 'a ruse' to get the Vessel into Hong Kong so that it could be arrested. The arrest could then be used by the Buyers as leverage to negotiate a new MOA on more favourable terms. This motive, coupled with the "cavalier" attitude, amounted to a misuse of the arrest process. The arrest was therefore carried out with 'malicious negligence'. The Buyers' tactic could not have been "a sincere use of the arrest mechanism to enforce a genuine in rem claim".


The case confirms that a claim for breach of a contract for the sale and purchase of a ship does not trigger the arrest jurisdiction under the 1952 Arrest Convention or Section 12A of the Hong Kong High Court Ordinance.

A buyer might have a right of arrest if the terms of the MOA provide that it acquires a right or interest in a ship upon payment of a deposit. However, any buyer attempting to arrest on this basis must exercise caution when applying for the Warrant of Arrest. The arresting party must give full and frank disclosure, and the duty to do so is continuing. Where the legal basis for the claim is uncertain, the judge hearing the application for the Warrant of Arrest must be provided with a fair and even-handed analysis of the authorities. Failure to do so will expose the arresting party to a risk of a claim in damages for wrongful arrest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.